Japan's economy surges ahead in first quarter

TOKYO - Japan said Wednesday its economy powered ahead at a 4.0 percent annualised pace in the first quarter of 2008, but analysts warned tougher times lie ahead due to high oil prices and slowing US growth.

By (AFP)

Published: Wed 11 Jun 2008, 10:40 AM

Last updated: Sun 5 Apr 2015, 1:08 PM

It was the third straight positive quarter for the world's second-largest economy, which is gradually recovering from a series of slumps since the 1990s. Growth was also much faster than the initial estimate of 3.3 percent.

Gross domestic product (GDP) grew by 1.0 percent in the three months to March from the previous quarter, up from a preliminary reading of 0.8 percent, according to the Cabinet Office.

The upgrade was mainly due to higher-than-expected investment by companies in new equipment and factories, with corporate capital spending up 0.2 percent from the previous quarter, against an initial estimate of a 0.9 percent drop.

Consumer spending grew 0.8 percent, housing investment jumped 4.6 percent and exports expanded 4.0 percent.

But many analysts warn that a slowdown is inevitable in the second quarter of 2008 as the global economic climate chills due to the economic problems in the United States sparked by a housing slump and a related credit crunch.

‘The data confirmed risk factors going forward,’ said Hideki Matsumura, economist at Japan Research Institute, pointing to the return of inflation due to soaring energy and raw material import costs.

‘Companies have not been able to pass on the rising cost to consumers. We are cautious about the outlook,’ he said.

Business investment and brisk exports have been key pillars of the economic recovery.

But now US-bound exports are declining while rising oil prices and a stronger yen are pressuring company earnings, making corporate Japan more cautious about investing aggressively in new facilities.

Hopes for sustained economic growth are thin with the continued rise of crude oil prices, Matsumura said.

‘Downward pressure on the domestic economy will continue,’ he said.

Underscoring the tough external environment, Japan's current account surplus shrank for a second straight month in April as soaring oil prices inflated the value of imports and US-bound exports continued to fall.

Asia's largest economy saw a 29.6 percent drop in its surplus in the current account, the broadest measure of trade in goods and services, to 1.38 trillion yen (12.9 billion dollars), the finance ministry said.

But other analysts said there were reasons to be optimistic that the US economy would recover in 2009, pulling up the Japanese economy with it.

‘We expect Japanese growth to stay flat for the rest of the year. If the US economy recovers as expected in the next year, we believe it should spur growth in Japanese exports,’ said Mitsumaru Kumagai, economist at Daiwa Research Institute.

‘We do not see significant risks for the Chinese economy. That should also buoy Japanese exports, the main driver of the Japanese economy,’ he added.

Despite the first-quarter growth, most analysts believe that Japan's central bank is unlikely to raise its super-low interest rates any time soon given the uncertain outlook for the global economy.

The central bank has kept its key rate at 0.5 percent, the lowest among major economies, since February 2007.

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